Dive Brief:
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General Mills sales rose 2.1% to $4.2 billion, with organic operations up 1%, during its second quarter. The cereal and snack maker posted growth in all four operating segments, including its North American division, where sales rose 0.8%, the company said, despite an 11% drop in yogurt sales.
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The company posted a profit of $431 million, down 11% from the year-ago period. The Minneapolis-based company revised its full-year organic sales outlook to between flat and down 1%, compared to the previous projection of a 1% to 2% decline.
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Jeff Harmening, the company's new CEO, said while he was pleased with improvements the company achieved across its geographies, product platform and channels, there is still work to do to achieve its full-year goals. "We're executing better, with stronger innovation, more effective brand building, and better merchandising leading to market share gains in the majority of our key global platforms," he said in a statement. "I'm encouraged by the step that fiscal 2018 represents in our effort to return our business to consistent top- and bottom-line growth for the long term."
Dive Insight:
General Mills credited the increase in U.S. cereal sales during the second quarter to strong demand for its new Chocolate Peanut Butter Cheerios product and to positive performances by its iconic Lucky Charms, Cinnamon Toast Crunch, Reese's Puffs, and Cocoa Puffs brands. On the snack side, sales growth in Larabar and Nature Valley helped offset declines in its Fiber One snack bars.
General Mills, which has been hit by declines in its yogurt division even as its competitors notched gains, showed signs of improvement but overall continued to struggle. Yoplait, the segment's long-established leader that ceded the top spot to Chobani last year, posted declines in its Greek and Light varieties. Yoplait Mix-Ins and Oui by Yoplait, a French-style yogurt packaged in glass jars with simple ingredients such as whole milk, pure cane sugar and real pieces of fruit, performed well.
Organic sales in the convenience store and foodservice segment were up 5% to $512 million, driven in part by growth in frozen meals and cereal and snacks. However, that segment's operating profit of $106 million was a 2% drop from last year due to higher input costs.
For the rest of its fiscal year, General Mills said it plans to grow cereal brands globally, improve its U.S. sales through innovation, invest in growth opportunities — including Häagen-Dazs ice cream, snack bars, Old El Paso Mexican food and natural and organic food brands — and invest in its foundation brands.
As a standout in the ready-to-eat cereal market, General Mills has had to reach beyond its traditional segments to attract new customers and make itself relevant in today's market. In the past year, it has increased whole grains in its cereals, increased the number of gluten-free products to more than 1,000 — up from 850 in 2014 — and overhauled its supply chain to ensure long-term availability of organic ingredients. It also has repackaged cereals like Cinnamon Toast Crunch into bar form to allow it to take advantage of the snacking, on-the-go consumer.
While the company hasn't been nearly as active in the M&A space as some others — Campbell Soup and Hershey, most recently — it launched a venture capital arm, 301 INC, in 2015 to invest in promising food start-ups and to diversify its portfolio. The company has long been mentioned as a potential takeover target or a potential buyer of another business. It would not be surprising to see the cereal maker enter the M&A fray next year.
In the meantime, General Mills needs to further boost sales of its core products and continue to innovate to attract today's millennial consumers who may appreciate the nostalgic cereals of their youth but also want exciting tastes and trendy, on-the-go products. This latest earnings report is encouraging, but clearly the legacy brands will have to improve for the company to increase its relevance in a rapidly changing food landscape.